Tuesday, June 24, 2014

How is wealth created?

As a Certified Financial Planner, I’m often asked by women how investments work, and why they should invest outside of a savings account.  Without a clear understanding of why you should invest in a company in business in an attempt to make a profit rather than putting money in a savings vehicle like a CD, it may be easier to take the path of least resistance.  Let me explain.  The bank or credit union pays you one quarter of a percent (or less) on your deposit, which is in essence a loan to the bank, and they loan money out to others at 4% to 5%. You may get a bit more on a CD, but that, my friend is capitalism.  A savings deposit pays one quarter of a percent (.25%) to the loaner (you); and 4.75% to the owner (the bank). In order to accumulate meaningful savings, it is often necessary to take on some investment risk. So that leads to the question:
How is wealth created? 
There are four things required in order for wealth to be created.
1.         Financial capital or money.  Money is necessary to be invested in order for a company to manufacture a product or provide a service for a profit.
2.         Natural resources.  Oil, gas, land and gold and other commodities are assets that can be used in creating products.
3.         Intellectual capital.  A great idea or a new way of delivering a product or service is an example of intellectual capital.  Think Apple i-Phone or the Google search engine.
4.         Skilled labor.

When all four of these things come together, wealth is created.  If we provide capital to a company through investment of our money, that entitles us to a piece of the wealth created.  Investing, in its simplest form, is saving a part of what you earn, having an investment philosophy or discipline and a roadmap, and paying attention to the cost of the investment.  If you’re not sure how to proceed, engage a Certified Financial Planner and they will help you make a plan.  Don’t wait for your husband or your father or some other man in your life to do this for you.  You are capable and qualified to do this on your own.

Thursday, February 27, 2014

The best advice needs no more than a 4 by 6 index card (Continued).

The best advice needs no more than a 4 by 6 index card (Continued).


If you missed my last blog, please go back and read it first, as this is a continuation of the advice given by University of Chicago Professor Harold Pollack and my commentary on how to put the advice to use (my advice is in parenthesis unless otherwise noted).

6. Maximize tax advantaged savings like Roth, SEP and 529 accounts. (If this sounds like financial mumbo jumbo, don’t despair.  A good basic investment class, book or advisor can explain how all these work in layman’s terms and help you understand how they can help you meeting your long term goals).

7. Pay attention to fees, avoid actively managed funds. (Fees matter in mutual funds and it is important to know how to evaluate these fees. Actively managed funds can beat an index fund but it is highly unpredictable and only realized in hindsight. Less than .001% of 5-star top performing actively managed funds are still at the top 5 years later.

8. Make financial advisor commit to a fiduciary standard (i.e. Puts your interests as a client ahead of their own, disclosing any conflicts of interest and providing independent advice).

9. Promote social insurance programs to help people when things go wrong. (Many people can afford to plan for the things that can go wrong by purchasing life insurance to pay debt and provide income for family. They can buy long term care insurance to protect their assets for spouse and possibly children as well as save part of their money for the future so social security isn’t the only source of income. Participate in retirement plans. The list goes on and on. If you think partnering with an advisor will help keep you on track, go for it. The fee you pay to do the right things for your family could prove to be “priceless”.)


Monday, November 18, 2013

The Best Advice Needs no more than an Index Card.

My Blog, A Man is Not a Plan, started as a way to provide financial advice and information to women. I know a lot of men that read and share my blog with spouses, daughters and friends. One reason I wanted to gear this blog toward women is that many women either control or have a better grasp of the family finances but due to a lack of confidence or lack of knowledge or education subjugate the task and authority of financial investment and saving decisions to their spouse.

I’d like state a few reasons I think a couple should seek the advice of a financial advisor and preferably a CFP® (CERTIFIED FINANCIAL PLANNER ™). I recommend that you work with an advisor who commits to a fiduciary standard, putting your best interests ahead of their own.

Recently, the University of Chicago Professor Harold Pollack claims the best financial advice needs no more than an index card size piece of paper. This “simple” advice is great, just not easy to implement due to human nature. I share this advice with you today. I agree with his advice, but what he doesn’t take into consideration is human psychology, risk aversion, greed and fear. That is where a good financial advisor can help you put these ideas into play. The words in parenthesis are my opinions of his advice and tips on how to implement.

1.      Max your 401(k) or equivalent – (if you are asking yourself what a 401k is, you could probably benefit from consulting an advisor to help educate you on the why and how.)

2.      Buy inexpensive, well diversified mutual funds. (If you are unsure how to evaluate and discover or uncover “hidden costs,” seek out a CFP® to explain).

3.      Never buy or sell individual securities, the person on the other side of the table knows more than you do. (Good advice on its own, no further comment from me)

4.      Save 20% of your money. (If that seems impossible, go to an advisor and map out a plan to make this happen over time by setting goals and a making a serious commitment to your financial future).

5.      Pay your credit card balance in full every month. (Best advice so far,  in my opinion. If you don’t spend more than you earn, you will be able to address 1-4 above).

I’m going to leave you with the first five to ponder and discuss with your spouse or significant other or someone you trust with money matters.

Sometimes the simple solutions are the most difficult to implement because they force you to look at and evaluate your current situation and create a new paradigm for the financial future you’ve always wanted.


Monday, July 29, 2013

“The Secret of Getting Ahead is Getting Started”

Agatha Christie, Mystery Writer

The hardest part of financial planning is getting started.  As a planner of almost 25 years, I have heard almost every excuse under the sun.  Following is a sample of a few examples.  Have you ever made any of these statements?

20’s – I’m too young to have to worry about it.  I’m just getting started.  I need to buy a TV, stereo, car, etc. and other “stuff.”  There’s plenty of time. I can make it up later. I’ll just save more once I start saving.

30’s – I’m starting a family.  The kid’s school is expensive.  We have a house to pay for.  When the kids get older it will cost less. (Seasoned parents out there know that’s not true).

40’s – We want to have fun.  There is plenty of time to save.  Our kids will go to college on a scholarship.  We deserve to live it up!

50’s – We’re empty nesters.  It’s time to have fun, travel, buy that luxury car.  Our parents’ inheritance will take care of our retirement.  (Another future shock – your parents may not care about securing your future).

60’s – I should have started saving when I was 20.  I’ll never be able to retire.  Where were you when I was young?

You can procrastinate throughout your entire life and miss the boat, or you can quit making excuses. 

Start right now.  There is no time like the present.

What’s your plan for the future?


Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you.

Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC.  NFP Securities, Inc. is not affiliated with Fish & Associates.


Friday, July 19, 2013

What Holds You Back?

I have been a long time teacher and practitioner of yoga.  In yoga the term Samskara is defined as generalized patterns as well as individual impressions, ideas or actions.  Repeating the actions mentally, emotionally and physically reinforces them, creating a “groove” so to speak that is difficult to change.  Think of the groove running water creates through a landscape.  It can take the power of an earthquake to change its course. 

Samskaras, or patterns can be both good and bad.  What does this have to do with you and your money?

There are many deeply embedded habits developed around issues with money that can be difficult to change.  Believing that you deserve to go out and spend everything you earn without saving for your future, spending money you don’t have, and charging on a credit card to “feel better” are examples of money “Samskaras.”  Not spending or hoarding money, chastising a partner or monitoring every penny spent by your partner, “just because,” is another destructive behavior that can put a great strain on a relationship. 

The first step to changing destructive habits or creating new ones is recognition.  Any behavior around money that you’re either ashamed of later or that causes major problems in your relationship is worth exploring and making an effort to change.

What you believe becomes your reality.  This conclusion has been found in multiple psychological studies performed on the topic.  If you believe you deserve to spend money you can’t afford to spend or that you don’t have enough money to save for your future, you will continue to create a future that may cause regret.  Mahatma Gandhi said “a man is but a product of his thoughts – what he thinks…he becomes.”

If you recognize any negative or destructive behavior, commit to change. Discuss and make a plan with your partner, seek outside advice – do whatever it takes.  You can change these patterns and create a new positive future. Start the discussion today.

”The philosophy of the rich and the poor is this: the rich invest their money and spend what is left. The poor spend their money and invest what is left.”

Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you.

Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC.  NFP Securities, Inc. is not affiliated with Fish & Associates.





Wednesday, June 12, 2013

No One Can Predict the Future

As the Dow reaches new highs, I see behavioral patterns in investors that can often lead to irrational decision making.  Humans have a tendency to act and react emotionally on both greed and fear. When the markets move swiftly in either direction, people get excited or scared and can lose sight of why they are investing in the first place, and bad decisions may be made.

Consider the fact that as an investor, if you take the time to plan and determine the most important things you want to accomplish in life, there is a required time commitment that coincides with obtaining these long-term goals.  There is a disconnect that occurs when people respond to external stimuli (i.e., what the market or politicians are doing today) and make decisions based on these occurrences. 

No one can predict the future.  Having a written plan and knowing what you are trying to achieve can provide a deterrent to irrational decision making.  I feel as a financial planner this is one of the primary services that we provide to our clients.  We work to keep people on track and help them avoid the knee-jerk reactions that could prove to be detrimental to achieving the most important goals in life. 

Doug Lennick, CFP, quoted, "Too many financial professionals try to predict the future.  It's a fool's game."

 A financial plan can help you prepare for whatever happens.  For example, if you need money in the next few months or year, you will have an appropriate place to take it from.  If you're saving in an investment with the goal of growth for future income, you keep that money off limits for short term needs. 

The reason most couples argue about money is that they haven't verbalized and written down what they want for their future.  The process of having this discussion with your significant other, of planning and dreaming about what you want your future to look like, is the first step in taking control of your financial life.

We can't predict the future but we can make educated guesses and monitor and make changes as necessary, as life continues to unfold before us.

Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you.


Wednesday, December 19, 2012

“Investors have few spare tires left…”

“Think of an image of a car on a bumpy road to an uncertain destination that has already used up its spare tire. The cash reserves of people have been eaten up by the recent market volatility.”... Mohamed El Erian, CEO of PIMCO

We always hear the word volatility used in the media, by financial advisors and planners like me, but what does it really mean to you as an investor in dollars and cents? Sometimes a picture is worth a thousand words.

                       Low Volatility                                             High Volatility
                            Plan A                                                             Plan B
Year       Growth of $100,000    Annual Rtn.    Growth of $100,000     Annual Rtn.
1                    $110,000                             10.0%                     $134,000                       34.0%
2                    $115,500                               5.0%                     $121,940                        -9.0%
3                    $131,670                             14.0%                     $153,644                       26.0%
4                    $143,520                               9.0%                     $129,061                      -16.0%
5                    $162,178                             13.0%                     $169,070                       31.0%
6                    $165,421                               2.0%                     $167,380                        -1.0%
7                    $185,272                             12.0%                     $197,508                       18.0%
8                    $214,916                             16.0%                     $173,807                      -12.0%
9                    $227,811                               6.0%                     $210,306                       21.0%
10                  $257,426                             13.0%                     $227,313                         8.0%
                      Average Return                 10.0%                                                             10.0%
                      Compound Return              9.9%                                                               8.5%
                      Standard Deviation           4.5%                                                           18.6%           
Hypothetical portfolios for illustrative purposes only. Diversification does not assure a profit or protect against a loss.

This illustration looks at a low volatility vs. a high volatility portfolio.

The average rate of return is the same but the end result show that a lower standard deviation portfolio can compound at a higher rate of return and create more wealth over time. The longer the time period, the more pronounced the end result will be.

Most of the advertising done by investment companies show the average rate of return and may not explain the underlying volatility.

Here is another important point. A portfolio that goes down 50% requires 100% appreciation to get back to even.

In comparison, a portfolio that is down 8% only requires a recovery of about 9% to get back to even.

The greater the loss, the smaller the base on which your earnings can compound.

Yr     Growth of $100,000     Annual Return        Growth of $100,000     Annual Return
1                   $50,000                         -50.0%                                   $92,000                       -8.0%
2                   $54,500                           9.0%                                  $100,000                        9.0%

You can see from this example it would take years to get back to the original investment.

If you or your spouse is handling your own investments, make sure you both understand the risks you are taking on with your investment strategies.

If you don’t understand, or are unsure how to measure your portfolio’s risk, you may benefit from getting a second opinion or evaluation. The money spent with a professional could save you thousands of dollars in the future.

Knowledge is the power and you should understand the “whys” of how each investment made its way into your portfolio and the “how” of how this investment will help you meet your long term investment goals.

Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish and Associates.